5 Things You Should Do in An Economic Downturn

When the economy isn’t looking great, people can get scared. This is especially true when you have people losing their jobs and businesses are closing their doors. You need to have a plan on how you will weather an economic storm. Here are a few things you should look out for when creating that economic plan to make sure you have a great financial future – even when things look bleak!

Don’t BUY THAT!

I know it seems like a simple thing not to do, but it can be really hard to avoid when some of these businesses are selling items at rock bottom prices. In economic downturns, businesses often want to get rid of inventory because if it’s simply sitting on the shelf, it’s costing them money. So, these businesses will offer you “once in a lifetime” deals on many items. Although it might be really temping to buy something you really want at a 60% discount, it might be a better idea to save that money or invest it if you are in the right position.

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Save Save Save!

I know this might be a no-brainer, but with the majority of the US population unable to take care of expenses of $1,000 or more, things can get really scary for most. Every person should have an emergency fund with 3 months minimum expenses – or as much as a year for those who want it. Check out my article on emergency funds for more information on that by clicking here. Having an emergency fund and some savings put aside can make a huge difference in an economic downturn. If you lose your job or are struggling to pay new mounting bills, this many be the difference between bankruptcy and thriving during a downturn. Saving can also give you a lot of peace of mind.

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Stock Up

No, I don’t mean make sure you’re buying stocks. I mean buy the essentials that you need. It can be really hard to make great returns in the stock market year over year, but if you are able to buy the essentials that you need at a large discount – jump on it! Saving a lot on items you need regularly can make a big difference in a downturn. If you can buy body soap in bulk to last you a year at 50%, you just got what you would buy all year long at half the price. The remaining money could be saved or used towards another one of your goals. Buying in bulk for discount prices can really help in a downturn because you need these items, anyway, so having them on hand means you won’t have to go out to buy them regularly at full price. Plus, it helps ease your mind by ensuring you and your family have what you need and can keep your heads above water.

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Insurance

That’s right, insurance is really important. I am talking about the insurances that will make sure you can pay the bills if you are out of work due to injury. Economic downturns already suck as it is, but if you’re injured or sick and can’t work, then having insurance there to pick up the bills can help make sure you’re keeping the lights on at home. I always thought it was funny that people buy insurance on their $1,000 phone or $600 TV, but they won’t buy disability insurance for the income that buys them these expensive items. It’s like having a money machine and not buying the warranty for it. That’s dumb.

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Cha Ching the Market

In an economic downturn, the bulls can sometimes run out of the pen while the bears invade the home. People often flock towards safe investments while the market is in turmoil and sell off what they have been buying into. This can be great when you time the market right. If you have a crystal ball and are able to get out of the market and then back in at the right time, then you’re going to be a very wealthy person. For everyone else without a crystal ball, you have some options:

  • You can use your best judgement and get out of the market when you think it’s at its peak, then get back in when you think it’s at the bottom.
  • You can dollar cost average your way through the market by putting in the same amount of money weekly or monthly.
  • You can do as I do and hold some cash in reserve while contributing the same amount monthly to then use that reserved money to purchase during months where the market has come down.

All of these options aren’t wrong, they each just require taking risk and they require a wide range of comfort and confidence in your investing skills. Investing isn’t easy. Sometimes you will win and sometimes you will lose, but over time the overall stock market has continued to move in an upward direction.

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Bottom Line

There are ways you can better prepare yourself for future downturns. I know many of us are feeling the effects from COVID-19 and it’s one of those situations that’s hard to recover from, especially since many businesses haven’t had a choice but to shut down. Many people are losing their jobs and some even losing their lives. It’s sad and I hope that many of you reading this article are at least somewhat prepared for this downturn. If not, I hope that the stimulus and potential future stimuli help you through this time. If you are in a position to take advantage of the low market prices, I hope you can do so. This market is looking great for buyers and I think it will continue to get better in the future. If you are not in this position yet, I think when we are recovering it will be quick and businesses will be back and operational with an influx of people who can’t wait to leave their homes and spend their money.

Disclaimer: None of this is intended to be investment advice it is a matter of opinion of the writer of this article.